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30 Best Tax Tips from Australia’s Adviser of the Year

“The end of financial year is rapidly approaching and now is certainly the time to take steps to reduce your tax bill and put yourself in the best position for the next financial year” says Olivia Maragna, named Australian Adviser of the Year. “All too often tax planning is left to the last minute which makes it difficult to minimise tax.”

To ensure you are in the best possible shape by June 30, Olivia has provided her top 30 tips for your personal tax, business and superannuation fund.

Your personal tax return

Prepay your expenses: By prepaying 12 months of tax-deductible expenses, you can bring the deduction forward into the 2012/2013 financial year. A good example of this is income protection insurance but other options are prepaying interest on margin loans or investment loans.

Delay income:If you are able to, try to defer income until after June 30 to avoid paying tax this financial year. As an example this may be done by reviewing term deposit maturity dates or legitimately deferring income by holding off issuing invoices until July 1.

Charity:If you are thinking of donating money, you may be able to receive a tax deduction for gifts and receive that deduction this financial year.

Buy health insurance if you are a high-income earner:To avoid the Medicare Levy Surcharge, high-income earners should take out private health cover. To avoid the surcharge for the entire year, the insurance needs to be held for the entire year otherwise it will be prorated.

For your business

Pay super early: Superannuation guarantee payments for your staff aren’t due until July but paying these in June will give you a deduction for them in this financial year as opposed to next financial year.

Do you have any trusts and companies? Trusts and companies can distribute funds to recipients on lower tax brackets to minimise tax payments. Ask your financial adviser to review your options.

Structure:Whether you operate as a sole trader, partnership, in a trust or company, it’s always a good idea to review your current business structure and whether this is still appropriate for your current situation.

Immediate write offs: For eligible businesses, assets costing less than $6,500 can be written off immediately and applies to the purchase of assets used in a business. Check with your accountant as to whether you are eligible.

Bad Debts:If you are not going to get paid, then it is best to write these off as a bad debt prior to June 30 in order to claim the tax deduction.

Trading stock: A stock take is the best way to write off any lost, damaged or obsolete stock and can reduce your taxable income.

Stationery: Stocking up on stationery and other consumables before June 30 can help offset profits.

Your super contributions

Get free money: If you will earn less than $46,920 this financial year, and make a non-concessional (after tax) contribution into your superannuation, the government will contribute up to 50 cents in the dollar (percentage varies with your income) to a cap of $500.

Spouse contributions:If your spouse earned less than $13,800 this financial year, you can claim a tax rebate of up to $540 if you contribute on their behalf.

Avoiding exceeding your contributions cap:The cap on concessional contributions (before tax) is $25,000. Exceeding your contribution cap can leave you liable to penalty tax, so it is certainly worth looking at your position prior to the end of June!

Don’t leave yourself short:If you are likely to be under the contributions cap, and are in position to make additional payments, it may be in your best interests to make the maximum payments available prior to 30 June. If your personal tax rate is more than 15%, taking advantage of the cap may mean an extra tax saving.

Review your Salary Sacrifices: Be aware that salary sacrificing into your superannuation fund affects your concessional contribution cap, and with the increase in Superannuation Guarantee from 9 to 9.25% on 1 July, there is the potential for salary sacrificing to push you over the cap from 1 July. Don’t forget to review this!

Review Your Insurance: As mentioned earlier, the End of the Financial Year is an ideal time to look not only at your tax commitments, but also your overall long-term financial plan, including insurance. You can organise this through your super fund, but need to also consider additional contributions to make up any shortfall.

Time it right:To have deductible contributions counted for this financial year, they must be received by the trustee by 30 June. Remit these contributions a number of days prior to ensure they are received in plenty of time.

Self-employed contributions: You can claim a 100% tax deduction for any superannuation contributions you make if you are fully or substantially self-employed. Contact your financial adviser to see if you are eligible as this is a great way to save tax.

Add extra to your super: If you have surplus funds outside of your superannuation fund, consider making additional contributions into your fund. The cap for non-concessional (after tax) contributions is $150,000 per year but if you are under 65, you can make contributions up to a $450,000 limit at any time over the course of the current year and the following two years without being penalised. This is particularly important for anyone close to 65 who wants to make maximum contributions prior to turning 65.

Consider a ‘Transition to Retirement’ pension:Workers who are over 55 can access up to 10% of their super as a “Transition to Retirement” pension (TTR pension) and can potentially save considerable tax. However, if you exceed the 10% limit, penalties will apply.

Business Concessions: If you are thinking about selling a small business and retiring, you may be eligible to use one of the several small business capital gains tax concessions. Some and possibly all of the proceeds may be able to be rolled into super, reducing or even eliminating the capital gains tax applicable on the sale.

For Trustees of self-managed super funds (SMSF)

Be compliant: Ensure that you have completed all the necessary paperwork for the SMSF. Confirm that the fund’s strategy is documented and investments are aligned with the strategy. Ensure the investment strategy considers members’ insurance needs.

Minimum pension payments: Make sure that the minimum pension payment has been taken by June 30 or the fund will be considered to be in the accumulation phase for the whole year and pay extra tax. Minimum pension amounts vary based on age, so a close check on this is worthwhile to ensure you are minimising tax.

Transferring investments into super:With changes to the regulations for in-specie (non-cash assets such as property and shares) transfers into an SMSF due to take effect on July 1 2013, there is likely to be a rush on transfers prior to that date, so don’t wait to the last minute. Basically, transfers after June 30 will need to be done on-market where possible or by an independent valuer if no market exists.

Are reserving strategies worth the risk?The ATO is looking closely at this strategy (delay paying contributions from June into member’s accounts until the following year to avoid exceeding the contributions cap and being hit with the excess tax) and will require an explanation other than, ‘To avoid tax!’

Points to consider for your records

Paperwork: If you find yourself scrambling through paperwork to keep a track of your tax deductions, consider revamping how you keep your records. Scanning receipts, electronically storing these or even having a separate bank account to keep a track of expenditure that can be claimed will help you maximise your tax refunds each year.

Important Note: An important point to remember in any conversations about tax planning is that this year, the 30th of June falls on a Sunday, so any strategies or contributions need to be finalised by Friday 28 June to be included in the 2012/13 financial year.

Look at this End of Financial Year as an opportunity to discuss your financial future with your financial planner, not just as a time to minimise your tax. Take the time to consider your superannuation, insurance, investments and retirement plan as well as your tax return.

Disclaimer: The information and any advice do not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.